Ask Larry: How Will The Social Security Spousal Benefit Be Calculated In Our Case?

Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.

Today’s column examines how spousal benefits are determined, whether it pays to switch from disability to retirement benefits early, whether mistaken Medicare payments can be recovered, effects of incarceration on benefits and how the WEP is applied. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, a company that markets Maximize My Social Security and MaxiFi Planner. Both tools maximize lifetime Social Security benefits. MaxiFi also finds retirement account withdrawal strategies and other ways to lower your lifetime taxes and raise your lifetime spending. Most important, it suggests how much to spend and save each year to enjoy a stable living standard through time.

See more Ask Larry answers here.

Ask Larry about Social Security here.

How Will The Social Security Spousal Benefit Be Calculated In Our Case?​​

Hi Larry, I retired several years ago and my wife and I moved to the Czech Republic to be closer to our children. My wife can begin received spousal benefits at age 62, in 2020. I was told while we were still in the US that she would receive a reduced spousal benefit at that time when she turns 62. Then recently I discovered on the Social Security site that her percentage is to be lower. To further complicate matters, I saw somewhere on the Social Security site that she will only get 50% of that. It is so confusing. Am I understanding any of this correctly? Can you shed some light on this matter for us? Thanks, Ben

Hi Ben, I’ll try. First of all, you need to understand how spousal benefits are computed. Assuming that the spouse does not also qualify for any other types of Social Security benefits, their unreduced spousal benefit rate would be equal to 50% of the worker’s primary insurance amount (PIA). And, the PIA is the amount that a worker receives if they start drawing their Social Security retirement benefits at their full retirement age (FRA).

Therefore, if a worker and their spouse start drawing their respective Social Security retirement and spousal benefits beginning with the month that each of them reaches FRA, the spouse would receive 50% of the amount that the worker receives. However, if either the worker or spouse chooses to take start drawing their benefits prior to FRA their benefit rate is reduced for age. But any such reduction only applies only to specific benefit involved, so a spousal benefit would not be reduced simply because the worker chose to start drawing their retirement benefits early. And to complicate matters further, the reduction percentage applicable to retirement benefits based on a person’s own work history is different from the reduction percentage applied to spousal benefits.

Since your wife was apparently born in 1958, the reduction percentage that would be applied to her benefit rate if she chooses to start drawing spousal benefits at 62 would be roughly 33.3%. So for example, if your PIA was $2,000, your wife could potentially get a spousal benefit of $1,000 if she waits until her FRA of 66 and 8 months to start drawing. But if she starts drawing at 62 instead, her $1,000 in this example would be reduced to roughly $666. Best, Larry

Should I Switch From Disability To Retirement Benefits At 62 To Give My Wife A Higher Spousal Rate?​​

Hi Larry, I am turning 60 years old in January and medically retired with a pension and Social Security disability. My wife is 67 and getting her retirement benefit of $438 a month and Medicare. She got a increase of $138 a month when I went on disability of $1,630 a month.

How should I proceed? Why did she only get this $138 and not half of my benefit? When I go off of disability and switch to regular Social Security, won’t she get a much larger increase than this $138? Would it profit us for me to switch to my retirement benefit at 62 so she could get the larger sum? Waiting seems like a loss of money. Thanks, Derek

Hi Derek, I would need more information to be able to give you a definite answer, but it doesn’t sound likely that switching to retirement benefits at 62 would be a winning strategy in your case. One thing I can tell you, though, is that your wife would never get a full half of your benefit amount as a spouse if she started drawing her own benefits prior to her full retirement age (FRA).

For example, say Meg files for her own retirement benefits at age 62. Meg’s full retirement age rate, or primary insurance amount (PIA) would be $500, but she accepts a reduced rate of $375 in return for starting her benefits early. Meg’s husband Joe becomes entitled to Social Security disability benefits (SSDI) when Meg turns 63, and Joe’s PIA is $1,600. Meg’s unreduced spousal rate would be calculated by subtracting her PIA from 50% of Joe’s PIA, which would be $300 in Meg’s case (i.e. $800 – $500). However, if Meg starts drawing the spousal benefit at 63 her spousal rate would be reduced to $225. That excess spousal benefit would then be added to Meg’s own reduced retirement benefit to give her a combined benefit rate of $600 (i.e. $375 + $225).

There is an alternate formula for calculating the family maximum benefit (FMB) on SSDI records that can in some cases reduce the amount payable to eligible family members. However, since your SSDI rate (which is equal to your PIA) is over $1,600, that alternate method should not be involved in your case. That means your wife’s spousal rate will likely not increase when you switch from SSDI to standard Social Security retirement benefits, which would happen automatically when you reach FRA. And if you switched to retirement benefits at 62 instead of FRA, your benefit rate would drop by roughly 28%.

If you still believe that your wife’s benefit rate is too low given the calculation method I outlined in the above example, she could file an appeal or ask Social Security to recalculate her benefit rate. Best, Larry

Do You Know Of A Process For Recovering Part B Premiums Deducted In Error?​​

Hi Larry, In May, 2018 I filed a restricted application for my Social Security spousal benefit. It was retroactive to November 2017, my FRA. Medicare Part A was also retroactive to November 2017. I specifically declined Part B and have documentation of that. I currently have employer health coverage. What I unfortunately did not notice in later communications was that I had been enrolled in Part B in error beginning July 2018. When I received my Medicare card, I tucked it in a file folder, anticipating that I would not be using it and did not notice that Part B was included.

My statement for 2019 benefits arrived showing a deduction for Part B premiums. I called Social Security and was told to write a letter declining Part B coverage, but the person had no information on whether I could be refunded any of the premiums that were deducted in error. Medicare said they could not help as the enrollment came through Social Security. Do you know of a process for recovering premiums deducted in error? Thanks, Kenneth

Hi Kenneth, The only way that you could receive a refund of the Part B Medicare premiums that have been withheld is if you can prove to Social Security’s satisfaction that your Part B enrollment was their mistake. For example, if you were enrolled as part of the spousal application process, your copy of your application should show that you declined enrollment in Part B of Medicare. If you can prove to Social Security’s satisfaction that the Part B enrollment was caused by their error, they should honor your request to have the enrollment nullified. And, in that event they would refund the premiums that were withheld.

The other option would be to request a voluntary Part B termination via a form CMS-1763. However, that would simply terminate your coverage starting with the end of the month following the month of your request. That would still leave you liable for premiums for the months that you were enrolled in Part B of Medicare, even if the enrollment was a mistake. Best, Larry

How Many Days Am I Not Eligible To Get Retirement Benefits Due To Incarceration?​​

Hi Larry, I was incarcerated for 45 days. One Social Security benefits analyst said I lose zero time as I was not there for a FULL calendar month. Another said I would lose 45 days worth. Another said I lose two months. I went in on the second day of the first month and got out on the 16th of the next. How many days am I not eligible to get retirement? Thanks, Blake

Hi Blake, If you were convicted of a crime and incarcerated for more than 30 consecutive days, you wouldn’t be eligible for any Social Security benefits for any calendar month in which you were incarcerated for any part of the month. For example, if you were convicted and incarcerated from November 2nd through December 15th, you would lose your entire Social Security payment for the months of November and December. Best, Larry

Does The WEP Applied To My Benefit Also Affect My Wife’s Spousal Benefit?​​

Hi Larry, When my Social Security benefits were approved, the WEP was applied. Later when spousal benefits were approved, it was half of my PIA. But the WEP calculators on the SSA site shows the spousal benefit as equal to half the 90% first bend point value which is far higher than what she is getting. Is my spouse also subject to the WEP or is the calculator figure right? Thanks, Andrew

Hi Andrew, I don’t have enough information to know why you received the results you describe. In any case though, if your Social Security retirement benefit is reduced due to the Windfall Elimination Provision (WEP), any auxiliary benefits (e.g. spousal, child) payable on your record would likewise be reduced. Unreduced spousal benefits are calculated based on 50% of the worker’s Primary Insurance Amount (PIA), which is equal to their full retirement age (FRA) retirement benefit amount and when the WEP applies to the worker’s benefit rate, then any auxiliary benefits payable on the worker’s record are calculated using the WEP reduced PIA.

On a positive note, WEP does not apply when calculating survivor benefit rates. So, if you die before your wife and if she qualifies for widow’s benefits, her widow’s benefits will be calculated based on your full benefit rate without any WEP reduction.

You may want to use one of my company’s two tools — Maximize My Social Security or MaxiFi Planner — to help maximize your lifetime Social Security benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

To learn more about your Social Security options, visit Economic Security Planning, Inc.

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